February 27, 2013

Quantitative easing (QE) is supposed to stimulate the economy by adding money to the money supply, increasing demand. But so far, it hasn’t been working. Why not? Because as practiced for the last two decades, QE does not actually increase the circulating money supply. It merely cleans up the toxic balance sheets of banks. A real “helicopter drop” that puts money into the pockets of consumers and businesses has not yet been tried. Why not? Another good question . . . .

When Ben Bernanke gave his famous helicopter money speech to the Japanese in 2002, he was not yet chairman of the Federal Reserve. He said then that the government could easily reverse a deflation, just by printing money and dropping it from helicopters. “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent),” he said, “that allows it to produce as many U.S. dollars as it wishes at essentially no cost.” Later in the speech he discussed “a money-financed tax cut,” which he said was “essentially equivalent to Milton Friedman’s famous ‘helicopter drop’ of money.” Deflation could be cured, said Professor Friedman, simply by dropping money from helicopters.

It seemed logical enough. If the money supply were insufficient for the needs of trade, the solution was to add money to it. Most of the circulating money supply consists of “bank credit” created by banks when they make loans. When old loans are paid off faster than new loans are taken out (as is happening today), the money supply shrinks. The purpose of QE is to reverse this contraction.

But if debt deflation is so easy to fix, then why have the Fed’s massive attempts to pull this maneuver off failed to revive the economy? And why is Japan still suffering from deflation after 20 years of quantitative easing?

On a technical level, the answer has to do with where the money goes. The widespread belief that QE is flooding the economy with money is a myth. Virtually all of the money it creates simply sits in the reserve accounts of banks.

That is the technical answer, but the motive behind it may be something deeper . . . .

An Asset Swap Is Not a Helicopter Drop

As QE is practiced today, the money created on a computer screen never makes it into the real, producing economy. It goes directly into bank reserve accounts, and it stays there. Except for the small amount of “vault cash” available for withdrawal from commercial banks, bank reserves do not leave the doors of the central bank.

According to Peter Stella, former head of the Central Banking and Monetary and Foreign Exchange Operations Divisions at the International Monetary Fund:

[B]anks do not lend “reserves”. . . . Whether commercial banks let the reserves they have acquired through QE sit “idle” or lend them out in the internet bank market 10,000 times in one day among themselves, the aggregate reserves at the central bank at the end of that day will be the same.

Reserves are used simply to clear checks between banks. They move from one reserve account to another, but the total money in bank reserve accounts remains unchanged. Banks can lend their reserves to each other, but they cannot lend them to us.

QE as currently practiced is simply an asset swap. The central bank swaps newly-created dollars for toxic assets clogging the balance sheets of commercial banks. This ploy keeps the banks from going bankrupt, but it does nothing for the balance sheets of federal or local governments, consumers, or businesses.

Central Bank Ignorance or Intentional Sabotage?

Another Look at the Japanese Experience

That brings us to the motive. Twenty years is a long time to repeat a policy that isn’t working.

UK Professor Richard Werner invented the term quantitative easing when he was advising the Japanese in the 1990s. He says he had something quite different in mind from the current practice. He intended for QE to increase the credit available to the real economy. Today, he says:

[A]ll QE is doing is to help banks increase the liquidity of their portfolios by getting rid of longer-dated slightly less liquid assets and raising cash. . . . Reserve expansion is a standard monetarist policy and required no new label.

Werner contends that the Bank of Japan (BOJ) intentionally sabotaged his proposal, adopting his language but not his policy; and other central banks have taken the same approach since.

In his book Princes of the Yen (2003),Werner maintains that in the 1990s, the BOJ consistently foiled government attempts at creating a recovery. As summarized in a review of the book:

The post-war disappearance of the military triggered a power struggle between the Ministry of Finance and the Bank of Japan for control over the economy. While the Ministry strove to maintain the controlled economic system that created Japan’s post-war economic miracle, the central bank plotted to break free from the Ministry by reverting to the free markets of the 1920s.

. . . They reckoned that the wartime economic system and the vast legal powers of the Ministry of Finance could only be overthrown if there was a large crisis – one that would be blamed on the ministry. While observers assumed that all policy-makers have been trying their best to kick-start Japan’s economy over the past decade, the surprising truth is that one key institution did not try hard at all.

Werner contends that the Bank of Japan not only blocked the recovery but actually created the bubble that precipitated the downturn:

[T]hose central bankers who were in charge of the policies that prolonged the recession were the very same people who were responsible for the creation of the bubble. . . . [They] ordered the banks to expand their lending aggressively during the 1980s. In 1989, [they] suddenly tightened their credit controls, thus bringing down the house of cards that they had built up before. . . .

With banks paralysed by bad debts, the central bank held the key to a recovery: only it could step in and create more credit. It failed to do so, and hence the recession continued for years. Thanks to the long recession, the Ministry of Finance was broken up and lost its powers. The Bank of Japan became independent and its power has now become legal.

In the US, too, the central bank holds the key to recovery. Only it can create more credit for the broad economy. But reversing recession has taken a backseat to resuscitating zombie banks, maintaining the feudal dominion of a private financial oligarchy.

In Japan, interestingly, all that may be changing with the election of a new administration. As reported in a January 2013 article in Business Week:

Shinzo Abe and the Liberal Democratic Party swept back into power in mid-December by promising a high-octane mix of monetary and fiscal policies to pull Japan out of its two-decade run of economic misery. To get there, Prime Minister Abe is threatening a hostile takeover of the Bank of Japan, the nation’s central bank. The terms of surrender may go something like this: Unless the BOJ agrees to a 2 percent inflation target and expands its current government bond-buying operation, the ruling LDP might push a new central bank charter through the Japanese Diet. That charter would greatly diminish the BOJ’s independence to set monetary policy and allow the prime minister to sack its governor.

From Bankers’ Bank to Government Bank

Making the central bank serve the interests of the government and the people is not a new idea. Prof. Tim Canova points out that central banks have only recently been declared independent of government:

[I]ndependence has really come to mean a central bank that has been captured by Wall Street interests, very large banking interests. It might be independent of the politicians, but it doesn’t mean it is a neutral arbiter. During the Great Depression and coming out of it, the Fed took its cues from Congress. Throughout the entire 1940s, the Federal Reserve as a practical matter was not independent. It took its marching orders from the White House and the Treasury—and it was the most successful decade in American economic history.

To free the central bank from Wall Street capture, Congress or the president could follow the lead of Shinzo Abe and threaten a hostile takeover of the Fed unless it directs its credit firehose into the real economy. The unlimited, near-zero-interest credit line made available to banks needs to be made available to federal and local governments.

When a similar suggestion was made to Ben Bernanke in January 2011, however, he said he lacked the authority to comply. If that was what Congress wanted, he said, it would have to change the Federal Reserve Act.

And that is what may need to be done—rewrite the Federal Reserve Act to serve the interests of the economy and the people.

Webster Tarpley observes that the Fed advanced $27 trillion to financial institutions through the TAF (Term Asset Facility), the TALF (Term Asset-backed Securities Loan Facility), and similar facilities. He proposes an Infrastructure Facility extending credit on the same terms to state and local governments. It might offer to buy $3 trillion in 100-year, zero-coupon bonds, the minimum currently needed to rebuild the nation’s infrastructure. The collateral backing these bonds would be sounder than the commercial paper of zombie banks, since it would consist of the roads, bridges, and other tangible infrastructure built with the loans. If the bond issuers defaulted, the Fed would get the infrastructure.

Quantitative easing as practiced today is not designed to serve the real economy. It is designed to serve bankers who create money as debt and rent it out for a fee. The money power needs to be restored to the people and the government, but we need an executive and legislature willing to stand up to the banks. A popular movement could give them the backbone. In the meantime, states could set up their own banks, which could leverage the state’s massive capital and revenue base into credit for the local economy.

ABOUT Ellen Brown

Ellen is an attorney, author, and president of the Public Banking Institute. In Web of Debt, her latest of eleven books, she shows how the power to create money has been usurped from the people, and how we can get it back. Her websites are http://webofdebt.com and http://ellenbrown.com.

The President’s “sequester” offer slashes non-defense spending by $830 billion over the next ten years. That happens to be the precise amount we’re implicitly giving Wall Street’s biggest banks over the same time period.

We’re collecting nothing from the big banks in return for our generosity. Instead we’re demanding sacrifice from the elderly, the disabled, the poor, the young, the middle class – pretty much everybody, in fact, who isn’t “too big to fail.”

That’s injustice on a medieval scale, served up with a medieval caste-privilege flavor. The only difference is that nowadays injustices are presented with spreadsheets and PowerPoints, rather than with scrolls and trumpets and kingly proclamations.

And remember: The White House represents the liberal side of these negotiations.

The Grandees

The $83 billion ‘subsidy’ for America’s ten biggest banks first appeared in an editorial from Bloomberg News – which, as the creation of New York’s billionaire mayor Michael Bloomberg, is hardly a lefty outfit. That editorial drew upon sound economic analyses to estimate the value of the US government’s implicit promise to bail these banks out.

Then it showed that, without that advantage, these banks would not be making a profit at all.

That means that all of those banks’ CEOs, men (they’re all men) who preen and strut before the cameras and lecture Washington on its profligacy, would not only have lost their jobs and fortunes in 2008 because of their incompetence – they would probably lose their jobs again today.

Tell that to Jamie Dimon of JPMorgan Chase, or Lloyd Blankfein of Goldman Sachs, both of whom have told us it’s imperative that we cut social programs for the elderly and disabled to “save our economy.” The elderly and disabled have paid for those programs – just as they paid to rescue Jamie Dimon and Lloyd Blankfein, and just as they implicitly continue to pay for that rescue today.

Dimon, Blankfein and their peers are like the grandees of imperial Spain and Portugal. They’ve been given great wealth and great power over others, not through native ability but by the largesse of the Throne.

Lords of Disorder

Just yesterday, in a rare burst of candor, Dimon said this to investors on a quarterly earnings call: “This bank is anti-fragile, we actually benefit from downturns.”

It’s true, of course. Other corporations – in fact, everybody else – has to survive or fail in real-world conditions. But Dimon and his peers are wrapped in a protective force field which was created by the people, of the people, and for … well, for Dimon and his peers.

The term “antifragile” was coined by maverick financier and analyst Nassim Taleb, whose book of the same name is subtitled “Things That Gain From Disorder.” That’s a good description of JPMorgan Chase and the nation’s other megabanks.

Arbitraging Failure

Dimon’s comment was another way of saying that his bank, and everything it represents, is The Shock Doctrine made manifest. The nation’s megabanks are arbitraging their own failures, and the economic crises that flow from those failures.

These institutions are designed to prey off economic misery. They suppress genuine market forces in order to thrive, and they couldn’t do it without our ongoing help. The Treasury Department and the Federal Reserve are making it happen.

We who have made these banks “antifragile” have crowned their leaders our Lords of Disorder.

Once Dimon told reporters that he explained to his seven-year-old daughter what a financial crisis is – “something that happens … every five to seven years,” which “we need to do a better job” managing.

Thanks to fat political contributions, Dimon manages them well. So do his peers. Misery is the business model. And by Dimon’s reckoning another shock’s coming any day now.

Money For Nothing

Bloomberg’s use of the word ‘subsidy’ in this instance can be slightly misleading. Public institutions don’t issue $83 billion in checks to Wall Street’s biggest banks every year. But they didn’t let them fail as they should have – through an orderly liquidation – after they created the crisis of 2008 through fraud and chicanery. Instead it allowed them to prosper from it, creating that $83 billion implicit guarantee.

As we detailed in 2011, the TARP program didn’t “make money,” either. Banks received a free and easy trillion-plus dollars from our public institution, on terms that amounted to a gift worth tens of billions, and possibly hundreds of billions.

That gift prevented them from failing. In private enterprise, this kind of rescue is only given in return for part ownership or other financial concessions. But our government asked for nothing of the kind.

Unpaid Debts

Breaking up the big banks would have protected the public from more harm at their hands. That didn’t happen.

Government institutions could have imposed a financial transaction tax, whose revenue could be used to repair the harm the banks caused while at the same time discouraging runaway gambling. They still could.

They could have imposed fees on the largest banks to offset the $83 billion per year advantage we’ve given them. They still could.

But they haven’t. This one-sided giveaway is the equivalent of an $83 billion gift for Wall Street each and every year.

Cut and Paste

$83 billion per year: Our current budget debate is framed in ten-year cycles, which means that’s $830 billion in Sequester Speak. You’d think our deficit-obsessed capital would be trying to collect that very reasonable amount from Wall Street. Instead the White House is proposing $130 billion in Social Security cuts, $400 in Medicare reductions, $200 billion in “non-health mandatory savings,” and $100 billion in non-defense discretionary cuts.

That adds up to exactly $830 billion.

No doubt there is genuine waste that could be cut. But $830 billion, or some portion of it, could be used to grow our economy and brings tens of millions of Americans out of the ongoing recession that is their daily reality, even as the Lords of Disorder continue to prosper. It could be used for educating our young people and helping them find work, for reducing the escalating number of people in poverty, for addressing our crumbling infrastructure, for giving people decent jobs.

It’s going to Wall Street instead.

Trillion-Dollar Tribute

The right word for that is tribute. As in, “a payment by one ruler or nation to another in acknowledgment of submission …” or “an excessive tax, rental, or tariff imposed by a government, sovereign, lord, or landlord … an exorbitant charge levied by a person or group having the power of coercion.” (Courtesy Merriam-Webster)

In this case the tribute is made possible, not by military occupation, but by the hijacking of our political process by the corrupting force of corporate contributions.

The fruits of that victory are rich: Bank profits are at near-record highs. Most of the country is still struggling to dig out from the wreckage they created but, as Demos’ Policy Shop puts it, “for the banks it’s 2006 all over again.”

On Bended Knee

“Millions for defense,” they said in John Adams’ day, “but not one cent for tribute.”

Today we’re paying for both. That doesn’t leave much for the elderly, the disabled, the impoverished, the children, or anybody else who doesn’t“benefit from disorder.” Nobody’s fighting for them in this budget battle.

That leaves the public with a clear choice: Demand solutions that are more just and democratic – or submit willingly to the Lords of Disorder.

Richard (RJ) Eskow is a well-known blogger and writer, a former Wall Street executive, an experienced consultant, and a former musician. He has experience in health insurance and economics, occupational health, benefits, risk management, finance, and information technology. Richard has consulting experience in the US and over 20 countries.

February 25, 2013

The World Economic Forum held its annual meeting in Davos, Switzerland last month. The official theme was "Resilient Dynamism," a catchphrase that makes about as much sense as the futureless economic policies trotted out at the meeting. At least the attendees had something to ponder at cocktail hour. The mission of the forum, on paper at least, is "improving the state of the world." And there is clear room for improvement: trillions of dollars of public debt, billions of people living in poverty, escalating unemployment, and a distinct possibility of runaway climate change.

The popular solution to these problems is sustained economic growth. In fact, the first item of the Davos meeting's global agenda was "how to get the global economy back on to a path of stable growth and higher employment" The thinking is that if we could just get people to produce and consume more stuff, then we could also pay off the debt, create jobs, eradicate poverty, and maybe even have some money left over to clean up the environment.

It's tempting to believe this economic fairy tale. But if growth is the cure to all of our ills, why are we in such a bind after sixty years of it? Even though the U.S. economy has more than tripled in size since 1950, surveys indicate that people have not become any happier. Inequality has risen sharply in recent years, and jobs are far from secure. At the same time, increased economic activity has led to greater resource use, dangerous levels of carbon dioxide in the atmosphere, and declining biodiversity. There is now strong evidence that economic growth has become uneconomic in the sense that it costs more than it's worth.

Maybe it's time to consider a new strategy—an economy of enough. Suppose that instead of chasing after more stuff, more jobs, more consumption, and more income, we aimed for enough stuff, enough jobs, enough consumption, and enough income.

To build a successful economy of enough, we would first need to eliminate the "growth imperative"—factors that make the economy reliant on growth. These include reliance on inappropriate measures of progress, creation of debt-based money, and the use of aggregate growth as a tool (albeit a blunt one) for generating jobs. With key policy changes, it is possible to dismantle the growth imperative and build an economy that works for people and the planet.

Let's start with measures of progress. Our main economic indicator, GDP, is a good measure of economic activity—of money changing hands—but a poor measure of social welfare. It lumps together desirable expenditures (food, entertainment, and investment in education) with expenditures that we'd rather avoid (war, pollution, and family breakdown). In the language of economics, GDP does not distinguish between costs and benefits, but counts all economic activity as "progress."

Instead of GDP, we need indicators that measure the things that matter to people, such as health, happiness, and meaningful employment. We also need indicators that measure what matters to the planet, such as material use and carbon emissions. In fact, we already have these indicators; the problem is that we largely ignore them, because we are so fixated on GDP. If the goal of society could be changed from increasing GDP to improving human well-being and preventing long-term environmental damage, then many proposals currently seen as "impossible" would suddenly become possible.

What about jobs? If we forgot about GDP, would the economy spiral into recession? The evidence for a relationship between economic growth and job creation is much weaker than you might expect and varies remarkably between countries. In the U.S., for example, a 3 percent increase in GDP tends to be accompanied by a 1 percent fall in unemployment. In France, the same amount of GDP growth reduces unemployment by about half a percent. In Japan, there is no relationship whatsoever. Clearly it is possible to break the connection between economic growth and unemployment. We just need the right economic policies.

One of these policies is work-time reduction. Over time, we have become more efficient at producing goods and services, such that it now takes us less time to produce the same amount of stuff as it did a few decades ago. But instead of using the benefits of technological progress to reduce working time, we have mainly used them to produce and sell more stuff. This may work in an economy where the goal is more (i.e., continuous growth), but not in one where the goal is enough. What we can do instead is use the benefits of technological progress to gradually shorten the working day, week, year, and career. Besides increasing leisure time, this would help keep people employed by distributing available work more equally.

Finally, there's the financial system. Most people don't realize it, but nearly all of our money is created by private banks. Banks are able to create money because they can issue loans far in excess of their deposits. This debt-based monetary system drives three things: (1) economic growth, as the need to pay back an ever-increasing amount of debt requires an ever-increasing amount of economic activity, (2) inflation, as the money supply tends to grow faster than the amount of real wealth that's available in the economy, and (3) instability, because if the banks stop lending, the whole house of cards collapses. If we want to take a stab at the heart of the growth imperative, and also prevent future financial crises, the answer is simple: stop banks from creating money out of thin air, and transfer this power to a public authority.

It's hard to believe that many folks in Davos (or anywhere else, for that matter) came away with a clear understanding of what "Resilient Dynamism" means. But one thing is certain: an economy founded on perpetual growth has no shot at being resilient. Maybe we could classify such an economy as dynamic, since it will continue to displace people and communities and erode the life-support systems of the planet. While the economic elites interpret "Resilient Dynamism" to fit their agenda, perhaps the rest of us should employ some plain language and let them know that enough is enough.

The White House apparently believes the best way to strengthen its hand in the upcoming “sequester” showdown with Republicans is to tell Americans how awful the spending cuts will be, and blame Republicans for them.

It won’t work. These tactical messages are getting in the way of the larger truth, which the President must hammer home: The Republicans’ austerity economics and trickle-down economics are dangerous, bald-faced lies.

Yes, the pending spending cuts will hurt. But even if some Americans begin to feel the pain when the cuts go into effect Friday, most won’t feel it for weeks or months, if ever.

Half are cuts in the military, which will have a huge impact on jobs (the military is America’s only major jobs program), but the cuts will be felt mainly in states with large numbers of military contractors, and then only as those contractors shed employees.

The other half are cuts in domestic discretionary spending, which will largely affect lower-income Americans. There will be sharp reductions in federal aid to poor schools, nutrition assistance, housing assistance, and the like. But here again, most Americans won’t see these cuts or feel them.

Moreover, the blame game can be played both ways, and Republicans are adept at slinging mud. When it comes to high-visibility consequences of the spending cuts — such as a sudden dearth of air-traffic controllers — Republicans will dodge blame by happily giving Obama authority to shift spending and find the cuts himself, thereby making the White House appear even more culpable.

Besides, there’s no end to this. After Friday’s sequester comes the showdown over continuing funding of the government beyond March 27. Then another fight over the debt ceiling.

The White House must directly rebut the two big lies that fuel the Republican assault – and that have fueled it since the showdown over the debt ceiling in the summer of 2011.

The first big lie is austerity economics – the claim that the budget deficit is the nation’s biggest economic problem now, responsible for the anemic recovery.

Wrong. The problem is too few jobs, lousy wages, and slow growth. Cutting the budget deficit anytime soon makes the problem worse because it reduces overall demand. As a result, the economy will slow or fall into recession – which enlarges the deficit in proportion. You want proof? Look at what austerity economics has done to Europe.

The second big lie is trickle-down economics – the claim that we get more jobs and growth if corporations and the rich have more money because they’re the job creators, and job growth would be hurt if their taxes were hiked.

Wrong. The real job creators are the broad middle class and everyone who aspires to join it. Their purchases keep economy going.

As inequality continues to widen, and income and wealth become ever more concentrated at the top, the rest don’t have the purchasing power they need to boost the economy. That’s the underlying reason why the recovery continues to be so anemic.

These two lies – austerity economics and trickle-down economics – are being told over and over by Republicans and their mouthpieces on Fox News, yell radio, and the editorial pages of the Wall Street Journal. They are wrong and there are dangerous.

Yet unless they are rebutted clearly and forcefully, the nation will continue to careen from crisis to crisis, showdown to showdown.

And we will have almost no chance of reversing the larger challenge of widening inequality.

President Obama has the bully pulpit. Americans trust him more than they do congressional Republicans. But he is letting micro-tactics get in the way of the larger truth. And he’s blurring his message with other messages – about gun control, immigration, and the environment. All are important, to be sure. But none has half a chance unless Americans understand how they’re being duped on the really big story.

The unemployment rate is 7.8%. Both parties agree that this is too high, but they propose totally different solutions to create more jobs. The Republican solution is to give more tax breaks and other advantages to the rich and to corporations because they are the job creators. Really? Then why haven't they created more jobs in the last 30 years. This historical experiment of "trickle down" economics has been tried since the time of Ronald Reagan and it has proven to be an abject failure. Yet Republicans are still pushing it as the solution to all our problems.

Esteemed Nobel laureate and Princeton professor Paul Krugman wants to take the traditional Keynesian approach and do deficit spending to improve the economy. He says there's no reason to worry about the deficit since the US can borrow money at extremely low rates. Not to worry. He sides with Dick Cheney who famously said, "Deficits don't matter." He and Bush then went on to add trillions to the national debt by fighting two unpaid for wars, tax breaks for the rich and an unpaid for prescription drug benefit for seniors that was in reality a giveaway to the pharmaceutical companies. But now that a Democratic President is in office, Republicans are all worried about deficits. They should have been worried when George W Bush was doing the profligate spending.

However, I disagree with both Cheney and Krugman. Deficits do matter and here's why. Sure the government can borrow a lot of money, as much as it wants to, at extremely low rates. But the government has to pay interest on the national debt and that is a growing part of the budget. Interest on the debt is the fourth largest government expenditure after Defense, Medicare and Medicaid. In 2011 Federal, state and local governments spent $454,393,280,417.03 on interest. It actually came down dramatically in 2012 to $359,796,008,919.49. That's still a lot of money. The Federal government alone spent around $220 billion in net interest on its debt in 2012, and is predicted to spend over a trillion dollars in interest by 2020. That's $1 trillion we can't spend to educate our kids or to replace our badly worn-out infrastructure.

And there's no guarantee that interest rates will continue to remain at historical lows. They are being held there right now by the Federal Reserve's policy of quantitative easing. The Fed is printing money at the rate of $85 billion a month. This money is being essentially given to the large Wall Street banks. Theoretically it's being loaned, but if someone loans you money at a zero interest rate, why would you ever pay it back? It's foolish to think that interest rates will always remain this low and that foreign nations and individuals will continue to loan us money ad infinitum.

The Fed's policy of printing money and then giving it to the big banks relies on the theory that low interest rates will get the economy moving again. The theory goes that people will be attracted to the low interest rates, borrow money and consume. It assumes that banks will actually loan out the money. Since consumption is 70% of the US economy, GDP will increase and that will create more jobs. In other words the Fed is exercising the same trickle down theory of economic growth made famous by Ronald Reagan and that has been tried for the last 30 years and failed. The Fed is essentially devaluing American currency in the hopes that this will create jobs. And it has been a big failure insofar as job creation is concerned but it has kept the US government's borrowing rates low.

So if both deficit reduction and job creation are important, how do you do both. Put simply the US government has to walk and chew gum at the same time. The Republican emphasis on cutting spending, especially spending on social programs, would lead to austerity and that would contract the economy even more. So that isn't the solution. To be fair President Obama has not been on the side of deficit spending as a way to get the economy out of the doldrums. He has been for a balanced approach of stimulating the economy and paying down the deficit. But Paul Krugman and many Democratic theorists like Robert Reich have.

The trick is to note that government spending does not have to be deficit spending. Government spending can increase without incurring greater deficits by increasing government revenues. And there are different varieties of government spending. Republicans favor just giving government money to private corporations and having them do the job. Their policy is to let the government just be a money conduit from taxpayers to corporations. Alternatively, government can spend money directly on jobs programs like rebuilding infrastructure. Instead of using the indirect approach which amounts to pushing on a string which is what the Fed is doing and which Republicans advocate, the government can actually create jobs directly in the public sector. If you want to create jobs, why not just create jobs directly instead of trying to get the private sector to create jobs. President Obama should just get up and say, "We've tried various policies to get the private sector to create jobs; they haven't worked so now the government, the public sector, is going to create jobs directly."

But here's where Democrats and President Obama have a problem. Instead of calling for more revenue by taxing the rich and corporations and government direct spending instead of spending to fund private corporations to rebuild infrastructure, Obama is reticent because he is afraid of being labeled a socialist. No worries, he's already been labeled a socialist despite his administration's being the most pro-business administration in years. And beware of the public/private partnership which is just another variation of the privatization of functions which the government can do more efficiently. We don't want to replace the military-industrial complex with an infrastructure-industrial complex replete with lobbyists, cost plus contracts and highly paid CEOs. There's no need for Wall Street to get involved.

Well, where is the money going to come from? Senator Bernie Sanders has an answer: End Offshore Tax Havens. One out of four profitable corporations pays nothing in taxes. Tax rates on profits are the lowest since 1972. Last year Facebook paid nothing despite having a billion dollars in profits. Government revenue as a percentage of GDP is lower than at any time in history. Corporate contributions to tax revenue are the lowest of any major country on earth. It is absurd for major corporations to stash huge amounts of money in countries like the Cayman Islands which have a zero tax rate.

Bernie Sanders and Jan Schakowsky have introduced the Corporate Tax Fairness Act. The bill will raise $590 billion over the next decade. The bill will also stop giving tax breaks to corporations for shipping jobs overseas. Their bill would prevent oil companies from disguising royalty payments to foreign countries as taxes in order to reduce their taxes in the US among other things. And it has a snowball's chance in hell of passing. A financial transaction tax would bring in as much as $100 billion annually. We used to have one; Europe just recently enacted one. Let's end the "carried interest" loophole for hedge and private equity funds. Wall Street needs to start paying its fair share.

Corporations have been getting away with murder in not paying their fair share of taxes. This is from an article by Bernie Sanders:

"In 2010, Bank of America set up more than 200 subsidiaries in the Cayman Islands (which has a corporate tax rate of 0.0 percent) to avoid paying U.S. taxes. It worked. Not only did Bank of America pay nothing in federal income taxes, but it received a rebate from the IRS worth $1.9 billion that year. They are not alone. In 2010, JP Morgan Chase operated 83 subsidiaries incorporated in offshore tax havens to avoid paying some $4.9 billion in U.S. taxes. That same year Goldman Sachs operated 39 subsidiaries in offshore tax havens to avoid an estimated $3.3 billion in U.S. taxes. Citigroup has paid no federal income taxes for the last four years after receiving a total of $2.5 trillion in financial assistance from the Federal Reserve during the financial crisis."

The sad fact is that the private sector is not in the process of creating jobs but of destroying jobs through automation and robotics. Almost anything a human being might have done in a job is now being done by robots. Some say that this creates jobs for "knowledge workers." Sure if you're among the upper 1% in knowledge talent. Companies like Microsoft, Google, Apple and Facebook are not looking for the average college graduate. They're looking for the upper 1% of college graduates. Together they employ less than 200,000 people in the US. The top talent in every field are making good money. Everyone else is going downhill if they're employed at all. 50% of college graduates are either unemployed or underemployed in terms of their qualifications. In the 2009-2010 recovery, 93% of the gains in income went to the top 1%.

Why should the private sector create jobs if they can get a robot to do the work 24 hours a day at a cost of less than $5.00 an hour? If the private sector will not create jobs, that leaves the government to create jobs directly. Instead of pushing on a string with policies that are supposed to create jobs indirectly by encouraging the private sector to do so, government should get more involved. More government revenues plus direct job creation rebuilding infrastructure could result in growing the economy, providing good middle class jobs and paying down the debt.

Chrystia Freeman in her book Plutocracy explains this phenomenon which results in the divergence of jobs and income, creating a well to do upper 1% class and everybody else:

"This is what ecomomists call the "superstar" effect - the tendency of both technological change and globalization to create winner-take-all economic tournaments in many sectors and companies, where being the most successful in your field delivers huge rewards, but coming in second place, and certainly in fifth or tenth, has much less economic value."

We are seeing the effects of a meritocracy where the top 1% of talent merges with the top 1% in terms of income and wealth. This is great for the top 1% of graduates from elite colleges but not so much for the average graduates of average colleges with $100,000. in student loan debt and a job at Starbucks instead of a career type job in their field. In every field the chasm between the superstars and everyone else is getting bigger and bigger. Inequality increases with the acceleration of meritocracy. Meritocracy and plutocracy converge creating a democratic dystopia.

That's why the government has to step in to regulate this runaway dystopia. Taxes on corporations and the rich need to be increased in order to tamp down inequality. This revenue needs to be redistributed to the former middle class in terms of job programs. It could be redistributed in terms of welfare and unemployment insurance, but this creates a class of dependents. It would be much better to create a middle class of workers rebuilding infrastructure. And this is not a trivial job. The American Society of Civil Engineers estimates that there is $2 trillion worth of work that needs to be done just to bring roads, bridges and other basic infrastructure up to par. But there is more to infrastructure than just that. When you consider all that needs to be done to prevent and combat the changes due to global warming, there is enough potential work out there to fully employ US workers for generations. Utilities need to be hardened and undergrounded. Fossil fuel powered electric plants need to be converted to solar and wind. Buildings need to be made less energy consuming. High speed rail needs to be implemented. Housing needs to be moved back from the shorelines.

There is no lack of work that needs to be done, and this is work the private sector not only won't do but in many cases it is work that the private sector is lobbying against doing. They profit from using the atmosphere as a dump. It's crucial that the government prevent runaway wealth maldistribution, create jobs that the private sector has no incentive to create and save the planet from ecological disaster.

February 17, 2013

I fear very much that our children, grandchildren and great- grandchildren are going to look back on this period in history and ask a very simple question: Where were they? Why didn’t the United States of America, the most powerful nation on earth, lead the international community in cutting greenhouse gas emissions and preventing the devastating damage that the scientific community was sure would come?

Let me be very clear. The issue that we are dealing with today is not political. It has nothing to do with Democrats, Republicans, Independents and all of the political squabbling we see here every day. It has everything to do with physics. The leading scientists in the world who study climate change now tell us that their projections in the past were wrong. That, in fact, the crisis facing our planet is much more serious than they had previously believed. They now tell us that if we continue along our merry path, where 12 out of the last 15 years were the warmest on record, and take no decisive action in transforming our energy system and cutting greenhouse gas emissions, this planet could be 8 degrees Fahrenheit or more warmer than is currently the case.

And what would that mean to planet Earth? It would mean sea levels rising by 3 to 6 feet which would flood cities like New Orleans, or Boston, or Miami – making them uninhabitable. And this would be true for coastal communities all over the world. It would mean that every year we would see more and more extreme weather disturbances, like Hurricanes Irene and Sandy - costing taxpayers tens of billions of dollars every year and resulting in devastating blows to our economy and productive capabilities.

We would see the price of food rising, because crops in the United States and around the world would be unable to grow in temperatures substantially higher than they are right now. It would mean greater threats of war and international instability because hungry and thirsty people would be fighting for limited resources. It would mean more disease and unnecessary deaths.

The legislation (pdf) that Senator Boxer and I introduced this week with the support of some of the leading environmental organizations in the country can actually address the crisis and does what has to be done to protect the planet. It can reverse greenhouse gas emissions in a significant way. It can create millions of jobs as we transform our energy system away from fossil fuel and into energy efficiency and such sustainably energies as wind, solar, geothermal and biomass.

A major focus of this legislation is a price on carbon and methane emissions. This fee on the largest fossil fuel polluters affects less than 3,000 entities nationwide but covers 85 percent of U.S. greenhouse gas emissions according to the Congressional Research Service. This legislation ends the fossil fuel subsidies, and protects communities by requiring that fracking operations comply with the Safe Drinking Water Act and disclose chemicals they use.

To protect families from fossil fuel companies jacking up prices, 60 percent of the carbon fee revenue will be rebated, per capita, to every legal U.S. resident.

To protect U.S. manufacturers, this legislation includes a border fee on imported fuels and products, unless the nation shipping them already has their own similar carbon price. That ensures a level playing field for U.S. businesses, while creating an incentive for international cooperation.

To transform our energy system, this legislation makes the boldest ever investment in energy efficiency and sustainable energy. That includes weatherizing 1 million homes a year as President Obama called for previously. It means tripling the budget for ARPA-E to do advanced research, and investing hundreds of billions through incentives and a public-private Sustainable Technologies Fund focusing on energy efficiency, solar and wind and geothermal and biomass, and clean transportation technology. We also provide funds to train workers for jobs in the sustainable energy economy. We provide funds to help communities become resilient in the face of extreme weather, and we pay down the debt by roughly $300 billion over ten years.

We have the opportunity right now, with the President’s commitment in the State of the Union, to make progress. The President can and must use his authority to cut down on power plant pollution, and reject the dangerous Keystone XL project. But he cannot give up on a comprehensive legislative solution, and neither can we. We will never fully deal with this crisis until Congress passes strong legislation. Senator Boxer and I are going to fight as hard as we can to do that, and we will work to rally support from American families all across this country that care deeply about their children and grandchildren’s future, and want to protect them from this planetary crisis.

Bernie Sanders (I-Vt.) was elected to the U.S. Senate in 2006 after serving 16 years in the House of Representatives. He is the longest serving independent member of Congress in American history. Elected Mayor of Burlington, Vt., by 10 votes in 1981, he served four terms. Before his 1990 election as Vermont's at-large member in Congress, Sanders lectured at the John F. Kennedy School of Government at Harvard and at Hamilton College in upstate New York. Read more at his website.

Soon after Sandy struck, an OpEd piece titled “We Need to Retreat from the Beach” by Dr. Orrin Pilkey, a pioneer in what’s now become the science of shoreline dynamics, appeared in the New York Times.

Dr. Pilkey wrote, “As ocean waters warm, the Northeast is likely to face more Sandy-like storms” with “surges…higher and ever more deadly….Yet there is already a push to rebuild homes close to the beach and bring back shorelines to where they were.” This “is the wrong approach to the increasing hazard of living close to the rising sea.”

“We should not simply replace all lost property and infrastructure. Instead, we need to take account of rising sea levels, intensifying storms and continuing shoreline erosion,” he said.

Dr. Pilkey, co-author of the landmark work The Beaches Are Moving, wrote that “we should strongly discourage the reconstruction of destroyed or badly damaged beachfront homes…This is tough medicine, to be sure, and taxpayers may be forced to compensate homeowners. But it should save taxpayers money in the long run by ending this cyclc of repairing or rebuilding properties in the path of future storms.”

Now, New York Governor Andrew Cuomo, in an extraordinary move for a politician considering the intense lobbying through the years by beachfront homeowners, is proposing to purchase structures wrecked by Sandy­at their pre-Sandy value­have them demolished and then preserve the flood-prone land permanently, as undeveloped coastline.

In a follow-up editorial, the Times called the Cuomo concept “splendid” and stated that “buying damaged properties and returning them to their natural state, as Mr. Cuomo proposes, is one of the best ideas to come along."

But will good science and good sense come together when it comes to the shoreline?

It will be mighty difficult ­- but it very much needs to happen.

The problem: vested interest. Many if not most of the folks who own beach houses­even ones left in shambles by Sandy and in highly vulnerable locations ­don’t want to give them up. I appreciate this. Visiting an old friend with a beach house a while back, gazing out a window and seeing the majestic Atlantic Ocean outside, I thought of the thrill of having a house on the sea. Sitting on his deck, the waves breaking below, was exciting.

Dr. Pilkey realizes this. “I understand the temptation to rebuild,” he wrote in his OpEd. “My parents’ retirement home, built at 13 feet above sea level, five blocks from the shoreline in Waveland, Miss., was flooded to the ceiling during Hurricane Camille in 1969. They rebuilt it, but the house was completely destroyed by Hurricane Katrina in 2005."

An inquiry by the Long Island newspaper Newsday, to gauge sentiment towards the Cuomo plan, found the “overwhelming number of Island residents would rather rebuild than relocate."

The Army Corps of Engineers is another factor in what’s been a constant ­- after a big storm the dumping of sand (given the appealing term “beach nourishment”) on the coast, sand often washed away in the next big storm, and otherwise taking on Mother Nature. The Corps is run by a combination of military officers and engineers who believe they can win any war including against nature. Also, coastal work keeps the Corps’ budget hefty.

Then there’s the National Flood Insurance Program. After seeing a TV commercial promoting it recently, I requested a brochure. The government pamphlet began: “Since flooding typically isn’t covered under your homeowners insurance policy, the best way to protect your home is through the National Flood Insurance Program.” The reluctance of private insurance companies to cover homes built in the teeth of the ocean says a lot. The lobbying of beachfront homeowners was instrumental in getting Congress to provide this taxpayer-supported program.

Key to the situation is Dr. Pilkey’s observation way back: The Beaches Are Moving. They are in flux and need to be flexible to protect the mainland. Add to this today’s rising sea levels and extreme weather caused by climate change.

Retreat might not be a good word to use for what needs to be done. It infers losing. Adjustment is a better word. We must adjust to the reality of our shifting shores.

Two important events took place this week. One was President Obama’s call for a higher minimum wage, which got a lot of attention. The other was a new report which showed just how much of our nation’s wealth continues to be hijacked by the wealthiest among us.

That didn’t get much attention.

There’s a Great Robbery underway, although most of its perpetrators don’t see themselves as robbers. Instead they’re sustained by delusions that protect them from facing the consequences of their own actions.

Heads I Win …

An updated report from economist Emmanuel Saez details the loss of income suffered by 99 percent of Americans, and the parallel gains made by the wealthiest among us. Its most startling finding may be this: The top 1 percent has captured 121 percent of the increases in income since the worst of the financial crisis, while the rest of the country has continued to fall behind.

If you thought the rich recovered from the crisis just fine but everybody else got the short end of the stick, relax: You’re not crazy. And since the financial crisis was caused by members of the 1 percent – not all of them, of course, just the ones we spent so much to rescue – it’s understandable if the injustice still rankles you.

But this wealth shift is not a new phenomenon. As Saez notes in his paper, “After decades of stability … the top decile share has increased dramatically over the last twenty-five years.” In fact, the top 10 percent’s share of our national income is higher than it’s been since 1917 - and maybe longer. (The figures don’t go back any farther than that.)

Although it began during the Reagan years, to a certain extent this wealth shift has been a bipartisan phenomenon. During the Clinton boom years (more of a bubble, actually; Dean Baker has the details) the top 1 percent saw their real income grow by 98.7 percent, while the other 99 saw a smaller increase of 20.3 percent. They lost more during the recession that followed – a little over 30 percent, as opposed to 6.5 percent for everyone else – but more than made up the difference again during the Bush years.

The same thing happened during the Great Recession: The top 1 percent lost more during the initial shock, but they’re rapidly making up the difference now. Government policy’s been designed to help them. (Meanwhile, underwater homeowners still don’t have the help they need.)

The disparities are even greater when you include capital gains. (Saez uses pre-tax income for his figures. Given the generous tax breaks for capital gains and the many loopholes used by the wealthy,the after-tax differences could be even greater.) There’s even economic injustice at the top. Gains for the one percent have far outstripped those of the top five and top ten percent.

As the old song says: Them that has, gets.

If you can remember the sixties you weren’t there … or can’t afford to remember

The minimum wage has been falling since 1968. As John Schmitt notes in his paper, “The Minimum Wage Is Too Damn Low,” “By all of the most commonly used benchmarks – inflation, average wages, and productivity – the minimum wage is now far below its historical level.”

It’s currently $7.25. What would it have been if it had been tied to a commonly-used benchmark? Schmitt ran the numbers:

Consumer Price Index (CPI-I): $10.52

Current CPI methodology (CPI-U-RS): $9.22

As a percentage of average production worker’s earnings: $10.01

And if it had been tied to productivity gains the minimum wage would be $21.72 today. But that cream was skimmed off at the top.

Magical Thinking

There’s a myth in this country that enormous wealth doesn’t come from anywhere or anyone, that it’s self-creating and self-sustaining, thriving on pure oxygen like an epiphyte or a garden fairy. In reality, highly concentrated wealth is caused by actions – human actions with human consequences.

Saez: “A number of factors may help explain this increase in inequality, not only underlying technological changes but also the retreat of institutions developed during the New Deal and World War II – such as progressive tax policies, powerful unions, corporate provision of health and retirement benefits, and changing social norms regarding pay inequality.”

Wealth inequity is created whenever an employer lowers his employees’ wages, replaces a full-time worker with several part-timers, busts a union, cuts corners on workplace safety, or pays a lobbyist to change the rules.

It’s created whenever a job is shipped overseas, and when investments are shifted from job-producing industries to the non-productive financial sector. It’s created when GE outsources its manufacturing operation and gets into the banking (read, “gambling with taxpayers’ money”) business. Or when AIG stops insuring risk and starts betting on it.

And the process isn’t slowing down. In fact, it seems to be accelerating.

As Saez says, “We need to decide as a society whether this increase in income inequality is efficient and acceptable and, if not, what mix of institutional and tax reforms should be developed to counter it.”

Up

President Obama’s proposal is modest, and there’s no reason not to enact it immediately. For those who believe that businesses “can’t afford” to pay higher wages, some key facts:

Most low-wage workers work for large corporations, not Mom-and-Pop businesses.

A Data Brief from the National Employment Law Project finds that 66 percent of low-wage employees work for companies with more than 100 employees. A handful of very large corporations collectively employ nearly 8 million low-wage employees.

There’s no evidence minimum wage increases mean fewer jobs.

Opponents say a higher minimum wage means fewer jobs. But the official U.S. unemployment rate in 1968, when the real minimum wage was highest, was 3.6 percent. Today it’s 7.8 percent – and the unofficial numbers are even worse. At the state level, the Fiscal Policy Institute recently concluded that “states with minimum wages above the federal level have had faster small business and retail job growth.”

Ninety-two percent of the 50 largest low‐wage employers in the country were profitable last year.

As the NELP notes, big corporations more than recovered from the recession: 75 percent are collecting more revenue, 63 percent are earning higher profits, and 73 percent have higher cash holdings than they did before the crisis.

Bringing It All Back Home

The real “job creators” aren’t the ultra-wealthy. If they could create jobs with all their added wealth, they would have done it already. The real job creators are working people with jobs.

They don’t invest their money in hedge funds or stash it in offshore accounts. They spend it: on food, transportation, their kids’ education, maybe a night at the movies … And then other people get jobs making those things possible.

We have a working model to follow: The USA in the 35 years after World War II. As Paul Krugman says, “To the extent that people say the economics is confusing or uncertain, that’s overwhelmingly because people want it to be.” We know how to do this.

Raising the minimum wage is a start. A maximum wage would help, too, by reducing CEOs’ incentives to emphasize quarterly gains over long-term growth and leaving more to be shared with employees.

We also need a national strategy for regaining the more reasonable distribution of income this country had in the 1950s. We need to ensure that the door of opportunity, which is closing every day for millions of young people, is opened again. And we need to ask the wealthiest to really pay their fair share – at something closer to the top tax rates of the 1950’s or 1960’s. (Elvis Presley’s manager “Colonel” Tom Parker once said “I consider it my patriotic duty to keep Elvis in the ninety percent tax bracket.”)

Most of all, we need to educate those around us so they understand what’s happening. That includes the well-intentioned well-to-do, who might do more to end the problem if they knew it existed. After all, you can’t stop a robbery until you know it’s happening.

Richard (RJ) Eskow is a well-known blogger and writer, a former Wall Street executive, an experienced consultant, and a former musician. He has experience in health insurance and economics, occupational health, benefits, risk management, finance, and information technology. Richard has consulting experience in the US and over 20 countries.

How HSBC hooked up with drug traffickers and terrorists. And got away with it

The deal was announced quietly, just before the holidays, almost like the government was hoping people were too busy hanging stockings by the fireplace to notice. Flooring politicians, lawyers and investigators all over the world, the U.S. Justice Department granted a total walk to executives of the British-based bank HSBC for the largest drug-and-terrorism money-laundering case ever. Yes, they issued a fine – $1.9 billion, or about five weeks' profit – but they didn't extract so much as one dollar or one day in jail from any individual, despite a decade of stupefying abuses.

People may have outrage fatigue about Wall Street, and more stories about billionaire greedheads getting away with more stealing often cease to amaze. But the HSBC case went miles beyond the usual paper-pushing, keypad-punching­ sort-of crime, committed by geeks in ties, normally associated­ with Wall Street. In this case, the bank literally got away with murder – well, aiding and abetting it, anyway.

For at least half a decade, the storied British colonial banking power helped to wash hundreds of millions of dollars for drug mobs, including Mexico's Sinaloa drug cartel, suspected in tens of thousands of murders just in the past 10 years – people so totally evil, jokes former New York Attorney General Eliot Spitzer, that "they make the guys on Wall Street look good." The bank also moved money for organizations linked to Al Qaeda and Hezbollah, and for Russian gangsters; helped countries like Iran, the Sudan and North Korea evade sanctions; and, in between helping murderers and terrorists and rogue states, aided countless common tax cheats in hiding their cash.

"They violated every goddamn law in the book," says Jack Blum, an attorney and former Senate investigator who headed a major bribery investigation against Lockheed in the 1970s that led to the passage of the Foreign Corrupt Practices Act. "They took every imaginable form of illegal and illicit business."

That nobody from the bank went to jail or paid a dollar in individual fines is nothing new in this era of financial crisis. What is different about this settlement is that the Justice Department, for the first time, admitted why it decided to go soft on this particular kind of criminal. It was worried that anything more than a wrist slap for HSBC might undermine the world economy. "Had the U.S. authorities decided to press criminal charges," said Assistant Attorney General Lanny Breuer at a press conference to announce the settlement, "HSBC would almost certainly have lost its banking license in the U.S., the future of the institution would have been under threat and the entire banking system would have been destabilized."

It was the dawn of a new era. In the years just after 9/11, even being breathed on by a suspected terrorist could land you in extralegal detention for the rest of your life. But now, when you're Too Big to Jail, you can cop to laundering terrorist cash and violating the Trading With the Enemy Act, and not only will you not be prosecuted for it, but the government will go out of its way to make sure you won't lose your license. Some on the Hill put it to me this way: OK, fine, no jail time, but they can't even pull their charter? Are you kidding?

But the Justice Department wasn't finished handing out Christmas goodies. A little over a week later, Breuer was back in front of the press, giving a cushy deal to another huge international firm, the Swiss bank UBS, which had just admitted to a key role in perhaps the biggest antitrust/price-fixing case in history, the so-called LIBOR scandal, a massive interest-rate­rigging conspiracy involving hundreds of trillions ("trillions," with a "t") of dollars in financial products. While two minor players did face charges, Breuer and the Justice Department worried aloud about global stability as they explained why no criminal charges were being filed against the parent company.

"Our goal here," Breuer said, "is not to destroy a major financial institution."

A reporter at the UBS presser pointed out to Breuer that UBS had already been busted in 2009 in a major tax-evasion case, and asked a sensible question. "This is a bank that has broken the law before," the reporter said. "So why not be tougher?"

Also known as the Hong Kong and Shanghai Banking Corporation, HSBC has always been associated with drugs. Founded in 1865, HSBC became the major commercial bank in colonial China after the conclusion of the Second Opium War. If you're rusty in your history of Britain's various wars of Imperial Rape, the Second Opium War was the one where Britain and other European powers basically slaughtered lots of Chinese people until they agreed to legalize the dope trade (much like they had done in the First Opium War, which ended in 1842).

A century and a half later, it appears not much has changed. With its strong on-the-ground presence in many of the various ex-colonial territories in Asia and Africa, and its rich history of cross-cultural moral flexibility, HSBC has a very different international footprint than other Too Big to Fail banks like Wells Fargo or Bank of America. While the American banking behemoths mainly gorged themselves on the toxic residential-mortgage trade that caused the 2008 financial bubble, HSBC took a slightly different path, turning itself into the destination bank for domestic and international scoundrels of every possible persuasion.

Three-time losers doing life in California prisons for street felonies might be surprised to learn that the no-jail settlement Lanny Breuer worked out for HSBC was already the bank's third strike. In fact, as a mortifying 334-page report issued by the Senate Permanent Subcommittee on Investigations last summer made plain, HSBC ignored a truly awesome quantity of official warnings.

In April 2003, with 9/11 still fresh in the minds of American regulators, the Federal Reserve sent HSBC's American subsidiary a cease-and-desist­ letter, ordering it to clean up its act and make a better effort to keep criminals and terrorists from opening accounts at its bank. One of the bank's bigger customers, for instance, was Saudi Arabia's Al Rajhi bank, which had been linked by the CIA and other government agencies to terrorism. According to a document cited in a Senate report, one of the bank's founders, Sulaiman bin Abdul Aziz Al Rajhi, was among 20 early financiers of Al Qaeda, a member of what Osama bin Laden himself apparently called the "Golden Chain." In 2003, the CIA wrote a confidential report about the bank, describing Al Rajhi as a "conduit for extremist finance." In the report, details of which leaked to the public by 2007, the agency noted that Sulaiman Al Rajhi consciously worked to help Islamic "charities" hide their true nature, ordering the bank's board to "explore financial instruments that would allow the bank's charitable contributions to avoid official Saudi scrutiny." (The bank has denied any role in financing extremists.)

In the 1970s, permafrost Arctic sea ice at its lowest point covered about half of the Arctic ocean surface. But it has been on an alarming declining trend over recent decades, now covering at its lowest point 25% of the Arctic ocean surface – or half of its previous area and thickness. This rapid warming of the Arctic region creates a near term world threat of a major sub-sea methane release that could intensify global warming to irreversible levels along with high fossil fuel C02 emissions.

We do know the frozen Arctic tundra holds vast amounts of methane sufficient to eliminate most life on earth. We do know that methane deposits are seeping into the atmosphere as a result of the Arctic’s thawing permafrost. Organic matter frozen in the permafrost contains huge amounts of carbon and methane. When thawed it decays and releases C02 and CH4. We do know that ice reflects the sun’s rays while oceans absorb the sun’s energies. So less and less Arctic sea ice cover only warms the Arctic region faster and faster. This process is magnified by expanding greenhouse gas emissions that warm up the Atlantic and Pacific ocean currents – thus a vicious circle leading to less sea ice growth during winter and more sea ice meltdown in summer.

In the words of Prof. Peter Wadhams of Cambridge University, a leading world Arctic region expert, “The fall-off in sea ice volume is so fast that it is going to bring us to Zero (cover) quickly. When? … 2015 is a very serious prediction, and I think I am pretty much persuaded that that’s when it will happen.” Prof. Wadhams is joined in this prognosis by scientists of the Arctic Methane Emergency Group (AMEG) in an updated Sept. 2012 report, “Declaration of anEmergency.” Following are some key conclusions from AMEG’s report:

“There now exists an extremely high international security risk of acute climate disruption followed by runaway global warming. The collapse of the Arctic sea ice will change the reflective qualities of the Arctic from 90% reflection of the sun’s rays to a 90% absorber. A vicious cycle of Arctic warming started 20-30 years ago, when currents from the Atlantic and Pacific oceans, warmed by expansion of greenhouse gas concentrations, transported their “extra heat” into the Arctic – initiating an accelerating decline in sea ice and increase in Arctic temperatures.

The “extra heat” has gone into the shallow seas over the continental shelf, warming them all the way to the seabed – with the potential of causing widespread destabilization of frozen methane hydrates and free gas in the permafrost cap, greatly enhancing global warming. Incidental reports of increasing marine methane emissions are ominous signs that this sub-sea permafrost warming process has already started. In addition, there is the possibility of methane -- held as hydrates or under thawing permafrost -- being suddenly released in very large quantities due to a disturbance, such as an earthquake.

The quantities of methane in the continental shelf are so vast (trillions of tons of frozen hydrates) that the release of just 1% could lead to the release of the remaining methane (locked in the sub-sea permafrost) in an unstoppable chain reaction. Global warming would spiral upward beyond 2 degree Celsius.” ___________________________________________________________________

Because of how methane reacts chemically in the atmosphere, it is 20-25 times more potent as a heat-trapping gas than C02 over a 100 year time span, but 72 times more potent over the first 20 years. That’s what make it sucha very dangerous gaswhen emitted into theatmosphere by the melting of Arctic ice crystals and organic matter at the ocean bottom or by hydro-fracking of oil and gas fields now going full steam ahead in the U.S. Fracking a well can usually only recover 20% of the gas. That means 80% of the gas – including methane – has been released and not recovered. That’s why U.S. regulations on fracking operations must be tough and strictly enforced. On the positive side, methane stays in the atmosphere 10-12 years and has a half life of 7 years. So, if no more methane were added, then every 7 years the amount of methane would drop by 50%.

WHAT MUST BE DONE ABOUT ARCTIC METHANE?

AMEG and Prof. Wadhams, among other scientists, are advocating an immediateemergency cooperative geo-engineering effort to cool theArctic air in subsequent summers until the sea ice has regained and methane has stopped releasing. This includes artificially clouding the Arctic region, perhaps also exploiting the cooling effect of reflective sulfate aerosols, to reflect the sun’s rays in the warm months from spring to fall. This is viewed by these researchers as an immediate emergency action that should be put in motion NOW.

This is because we do know that methane deposits – of extraordinary amounts sufficient to eliminate living matter on earth – are seeping into the atmosphere as the result of the Arctic’s thawing permafrost. As noted, research indicates that Arctic sea ice is on a melting trend to Zero by the end of 2015! Over the last 30 years, the Arctic sea ice has shrunk in half. The only way to avoid an ever worsening crisis, particularly in food security, is to cool the Arctic . This has to be done FAST to avoid a much a more serious collapse of sea ice in 2014-15.

Sea ice reflects the sun’s heat. The huge loss of sea ice has resulted in increased melting of the Arctic’s sea ice (and Greenland and Antarctic ice sheets) causing more heat to be absorbed from sun exposure, causing more melting, resulting in another feedback loop. Warmer temperatures also mean longer Arctic growing seasons where the Arctic acts as a carbon sink. But, there is a “tipping point”

where constant warming up of the earth and rapid loss of sun reflecting powers of sea ice makes the Arctic a carbon dioxide and methane source – releasing much more greenhouse gases than the region can possibly absorb. Arctic research scientists believe that point has arrived. Arctic warming is increasing at a faster rate causing more and more Arctic permafrost thawing and the resultant increased C02 and very toxic CH4 emissions. Little wonder AMEG, Prof. Wadhams, and other Arctic scientists, are loudly warning that methane release into the Arctic atmosphere is a global Ticking Time Bomb!

While methane release from coal mining and oil/gas exploitation, agriculture, livestock, transportation, decomposing garbage landfills, etc., is significant, it is a drop in the bucket compared to the potential methane release from the Arctic. One trillion tons of Arctic methane released into the atmosphere willeradicate life on earth.

Methane concentration is now about 1,800 ppb (parts per billion) and rising, contributing 15% to the earth’s warming. The C02 equivalent is 385ppm (parts per million vs. 348 ppm in 1992), contributing 75% to the earth’s warming. But, in the first 20 years, not to be forgotten is the fact that one molecule of CH4 contributes 72 times more to global warming than one molecule of C02.

Of course, the only final way to avert an emission disaster in the Arctic and reduce the overall impact of global warming is to give fossil fuels a step-by-step early retirement.

This means for the industrialized nations a 25%-40% reduction in C02 equivalent emissions by 2020 based upon 1990 levels. Europe has already achieved a 20% emission reduction back to 1990 C02 levels and an exceptionally low C02 emissions per capita of 7.5 tons versus 17.3 tons for the U.S. in 2011.

Stated another way, to avoid highly dangerous climate consequences, the concentration of heat trapping gases, largely from fossil fuels, must be kept stabilized at an atmospheric concentration of 450 ppm C02 equivalent (vs.385 ppm today) by 2050 to keep the global average temperature from rising more than 2 degrees Celsius (3.6 degrees Fahrenheit) by 2050. CO2 equivalent includes CO2, methane and nitrogen - all greenhouse gasses. This in turn requires that global cumulative emissions mustbe reduced at least 40% below the amount accumulated by the year 2000 of 2,800 gigatons (Gt)C02 equivalent to 1,700 Gt C02 equivalent for the period 2000-2050.It means the U.S. needs to reduce its extremely high greenhouse gas emissions at least 80% below 2000 levels by 2050. This obviously demands a rapid shift away from fossil fuels and related greenhouse gas emissions over the next 40 years. (Sources: “Howto Avoid Dangerous Climate Change,” by Union of ConcernedScientists, Sept. 2007; “Trends In Global C02 Emissions” - 2012 Report by European Joint Research Center of European Commission and PBL Netherlands Environmental Assessment Agency).

This world goal of a 40% reduction in cumulative emissions to 1,700 gigatons of greenhouse trapping gases in the atmosphere by 2050 is ominously overwhelming – especially when one considers China and India’s 4.5 billion population base. In an unbelievably short time and at only the beginning stage of industrializing, China has already reached (mainly from dirty coal) the same C02 emissions per capita as Germany today … with an average Chinese and Indian household purchasing power of one-8th and one-16th, respectively, of that of the average European or American household! China and India are adding one coal powered power plant each week!

Historical data shows conclusively that global surface temperatures over last decades are higher than at any time over the past 400 years. In the Northern Hemisphere alone, the recent rise in temperatures is the highest seen in the last 1,000 years! All this points to the absolute necessity of aggressively transforming to all-out integrated green energy policy actions – bottom up and top down – that drastically reduce greenhouse gas emissions from fossil fuels the next 40 years.

But this paper is all about an immediate NOW priority for global leaders to face directly the Ticking Time Bomb of a near term potentially explosive, highly toxic methane release in the Arctic region of unimaginable scale!

Raising the minimum wage from $7.25 to $9 should be a no-brainer. Republicans say it will cause employers to shed jobs, but that’s baloney. Employers won’t outsource the jobs abroad or substitute machines for them because jobs at this low level of pay are all in the local personal service sector (retail, restaurant, hotel, and so on), where employers pass on any small wage hikes to customers as pennies more on their bills. States that have a minimum wage closer to $9 than the current federal minimum don’t have higher rates of unemployment than do states still at the federal minimum.

A mere $9 an hour translates into about $18,000 a year — still under the poverty line. When you add in the Earned Income Tax Credit and food stamps it’s possible to barely rise above poverty at this wage, but even the poverty line of about $23,000 understates the true cost of living in most areas of the country.

Besides, the proposed increase would put more money into the hands of families that desperately need it, allowing them to buy a bit more and thereby keep others working.

A decent society should do no less.

Some conservatives say “decency” has nothing to do with it. Who has the right to decide what’s decent? We should let the “market” decide what people are paid.

This is one of the oldest conservative canards in existence, based on the false claim that there’s something called a “market” that exists separate from society. But there’s no “market” in a state of nature, just survival of the fittest.

A society necessarily determines how the “market” is to be organized. Standards of morality and decency play a large role in those decisions.

We set minimum standards for worker safety and consumer protection. We decide young children shouldn’t be in the labor force.

We do our best to prevent certain things from being bought and sold — such as slaves, dangerous narcotics, babies, votes, sex with children, machine guns, nuclear material.

We decide citizens shouldn’t have to buy certain things that should instead be available to everyone free of charge (paid in effect by all of us through our taxes) – such as clean drinking water, K-12 schools, safe bridges, protection from violence, public parks.

Opinions may differ about what decency requires, and we hash it out in a democracy. We might decide certain minimum standards are too costly or inefficient, or can’t be enforced, or impose unwarranted constraints on our freedoms.

Different societies come up with different answers. Handguns are banned in most other advanced nations, for example. Workers have more protections than they do in the United States. Minimum wages are higher. Taxes on the wealthy are higher. Healthcare is more universally available.

Every society must necessarily decide for itself what decency requires. That’s the very meaning of a “society.”

Don’t fall for the mindless assertion that “markets” know best. Markets are human creations, requiring human beings to decide how they are structured and maintained.

The questions we face – whether to raise the minimum wage, restrict the availability of guns, expand healthcare coverage, and countless other decisions – inevitably require us to define what we mean by a decent society.

February 11, 2013

If you’re sitting in the well of the House when a president gives a State of the Union address (as I’ve had the privilege of doing five times), the hardest part is on the knees. You’re required to stand and applaud every applause line, which means, if you’re in the cabinet or an elected official of the president’s party, an extraordinary amount of standing and sitting.

But for a president himself, the State of the Union provides a unique opportunity to focus the entire nation’s attention on the central issue you want the nation to help you take action on.

President Obama has been focusing his (and therefore America’s) attention on immigration, guns, and the environment. All are important. But in my view none of these should be the central theme of his address Tuesday evening.

His focus should be on the joblessness, falling real wages, economic insecurity, and widening inequality that continue to dog the nation. These are the overriding concerns of most Americans. All will grow worse if the deficit hawks, austerity mavens, trickle-down charlatans, and government-haters who have commanded center stage for too long continue to get their way.

In coming weeks the GOP will be using another fiscal cliff, a funding crisis, and another debt ceiling showdown to convince Americans of an outright lie: that the federal budget deficit is our most important problem, that it is responsible for the continuing anemic recovery, and that we must move now to reduce it.

The President should make it clear that any Republican effort to hold the nation hostage to the GOP’s ideological fixation on the budget deficit and a smaller government will slow the economy, likely pushing us into another recession. And that those most imperiled are the middle class and the poor.

He should emphasize that the real job creators are not the rich but the vast majority of ordinary Americans whose purchases give businesses reason to add jobs. And that if most Americans still cannot afford to buy, the government must be the spender of last resort.

Perhaps it’s too much to hope for, but I’d encourage the President to call for boosting the economy: Reversing the recent Social Security tax hike by exempting the first $20,000 of income from payroll taxes and lifting the ceiling on income subject to it, to make up the shortfall. Reviving the WPA and CCC, to put the long-term unemployed directly to work. Raising the minimum wage. Imposing a 2% annual tax surcharge on wealth in excess of $7 million to fund a world-class system of education, so all our kids can get ahead. Cutting corporate welfare and the military but not cutting public investments or safety nets the middle class and poor depend on. Giving tax credits to companies that create more new jobs in America. Helping states and locales rehire the teachers, fire fighters, police officers, and social workers they need.

This is the most fragile recovery in modern history, from the deepest downturn since World War II. Most Americans are not experiencing a recovery at all. As has been shown in Europe, austerity economics is a cruel hoax. President Obama must acknowledge this in his State of the Union, and commit to fighting those who would impose it on America.

When the greed, recklessness, and illegal behavior on Wall Street drove this country into the deepest recession since the 1930s, the largest financial institutions in the United States took every advantage of being American. They just loved their country - and the willingness of the American people to provide them with the largest bailout in world history. In 2008, Congress approved a $700 billion gift to Wall Street. Another $16 trillion in virtually zero interest

Speaking at a Thursday news conference on a new bill to shut down overseas tax havens, Sen. Bernie Sanders gestures toward a photo of a Cayman Islands building used by more than 18,000 companies to avoid paying taxes.loans and other financial assistance came from the Federal Reserve. America. What a great country.

But just two years later, as soon as these giant financial institutions started making record-breaking profits again, they suddenly lost their love for their native country. At a time when the nation was suffering from a huge deficit, largely created by the recession that Wall Street caused, the major financial institutions did everything they could to avoid paying American taxes by establishing shell corporations in the Cayman Islands and other tax havens.

In 2010, Bank of America set up more than 200 subsidiaries in the Cayman Islands (which has a corporate tax rate of 0.0 percent) to avoid paying U.S. taxes. It worked. Not only did Bank of America pay nothing in federal income taxes, but it received a rebate from the IRS worth $1.9 billion that year. They are not alone. In 2010, JP Morgan Chase operated 83 subsidiaries incorporated in offshore tax havens to avoid paying some $4.9 billion in U.S. taxes. That same year Goldman Sachs operated 39 subsidiaries in offshore tax havens to avoid an estimated $3.3 billion in U.S. taxes. Citigroup has paid no federal income taxes for the last four years after receiving a total of $2.5 trillion in financial assistance from the Federal Reserve during the financial crisis.

On and on it goes. Wall Street banks and large companies love America when they need corporate welfare. But when it comes to paying American taxes or American wages, they want nothing to do with this country. That has got to change.

Offshore tax abuse is not just limited to Wall Street. Each and every year corporations and the wealthy are avoiding more than $100 billion in U.S. taxes by sheltering their income offshore.

Pharmaceutical companies like Eli Lilly and Pfizer have fought to make it illegal for the American people to buy cheaper prescription drugs from Canada and Europe. But, during tax season, Eli Lilly and Pfizer shift drug patents and profits to the Netherlands and other offshore tax havens to avoid paying U.S. taxes.

Apple wants all of the advantages of being an American company, but it doesn't want to pay American taxes or American wages. It creates the iPad, the iPhone, the iPod, and iTunes in the United States, but manufactures most of its products in China so it doesn't have to pay American wages. Then it shifts most of its profits to Ireland, Luxembourg, the British Virgin Islands and other tax havens to avoid paying U.S. taxes. Without such maneuvers, Apple's federal tax bill in the United States would have been $2.4 billion higher in 2011.

Offshore tax schemes have become so absurd that one five-story office building in the Cayman Islands is now the "home" to more than 18,000 corporations.

This tax avoidance does not just reduce the revenue that we need to pay for education, healthcare, roads, and environmental protection, it is also costing us millions of American jobs. Today, companies are using these same tax schemes to lower their tax bills by shipping American jobs and factories abroad. These tax breaks have contributed to the loss of more than 5 million U.S. manufacturing jobs and the closure of more than 56,000 factories since 2000. That also has got to change.

At a time when we have a $16.5 trillion national debt; at a time when roughly one-quarter of the largest corporations in America are paying no federal income taxes; and at a time when corporate profits are at an all-time high; it is past time for Wall Street and corporate America to pay their fair share.

That's what the Corporate Tax Dodging Prevention Act (S.250) that I have introduced with Rep. Jan Schakowsky (D-Ill.) is all about.

This legislation will stop profitable Wall Street banks and corporations from sheltering profits in the Cayman Islands and other tax havens to avoid paying U.S. taxes. It will also stop rewarding companies that ship jobs and factories overseas with tax breaks. The Joint Committee on Taxation has estimated in the past that the provisions in this bill will raise more than $590 billion in revenue over the next decade.

As Congress debates deficit reduction, it is clear that we must raise significant new revenue. At 15.8 percent of GDP, federal revenue is at almost the lowest point in 60 years. Our Republican colleagues want to balance the budget on the backs of the elderly, the sick, the children, the veterans and the most vulnerable by making massive cuts. At a time when the middle class already is disappearing, that is not only a grossly immoral position, it is bad economics.

We have a much better idea. Wall Street and the largest corporations in the country must begin to pay their fair share of taxes. They must not be able to continue hiding their profits offshore and shipping American jobs overseas to avoid taxes.

Here's the simple truth. You can't be an American company only when you want a massive bailout from the American people. You have also got to be an American company, and pay your fair share of taxes, as we struggle with the deficit and adequate funding for the needs of the American people. If Wall Street and corporate America don't agree, the next time they need a bailout let them go to the Cayman Islands, let them go to Bermuda, let them go to the Bahamas and let them ask those countries for corporate welfare.

Bernie Sanders (I-Vt.) was elected to the U.S. Senate in 2006 after serving 16 years in the House of Representatives. He is the longest serving independent member of Congress in American history. Elected Mayor of Burlington, Vt., by 10 votes in 1981, he served four terms. Before his 1990 election as Vermont's at-large member in Congress, Sanders lectured at the John F. Kennedy School of Government at Harvard and at Hamilton College in upstate New York. Read more at his website.

February 07, 2013

We are in the most anemic recovery in modern history, yet our political leaders in Washington aren’t doing squat about it.

In fact, apart from the Fed – which continues to hold interest rates down in the quixotic hope that banks will begin lending again to average people – the government is heading in exactly the wrong direction: raising taxes on the middle class, and cutting spending.

The Bureau of Labor Statistics reported Friday that American employers added only 157,000 jobs in January. That’s fewer than they added in December (196,000 jobs, as revised by the Bureau of Labor Statistics). The overall unemployment rate remains stuck at 7.9 percent, just about where it’s been since September.

The share of people of working age either who are working or looking for jobs also remains dismal – close to a 30-year low. (Yes, older boomers are retiring, but the major cause for this near-record low is simply the lack of jobs.)

And the long-term unemployed, about 40 percent of all jobless workers, remain trapped. Most have few if any job prospects, and their unemployment benefits have run out, or will run out shortly.

Close to 20 million Americans remain unemployed or underemployed.

It would be one thing if we didn’t know what to do about all this. But we do know. It’s not rocket science.

The only reason for employers to hire more workers is if they have more customers. But American employers have not had enough customers to justify much new hiring.

There are essentially two sources of customers: individual consumers, and the government. (Forget exports for now; Europe is contracting, Japan is a basket case, China is slowing, and the rest of the world is in economic limbo.)

American consumers – whose purchases constitute about 70 percent of all economic activity – still can’t buy much, and their purchasing power is declining. The median wage continues to drop, adjusted for inflation. Most can’t borrow because they don’t have a credit record sufficient to allow them to borrow much.

And now their Social Security taxes have increased, leaving the typical worker with about $1,000 less this year than last.

The Conference Board reported last Tuesday consumer confidence in January fell its lowest level in more than a year. The last time consumers were this glum was October 2011, when there was widespread talk of a double-dip recession.

The only people doing well are at the top – but they save a large part of what they earn instead of spending it.

Overall personal income soared by 8 percent in the final three months of 2012 compared to an increase of just over 2 percent in the third quarter, but this income didn’t go into the pockets of the middle class. It went into the pockets of people at the top.

Wages and salaries grew a measly six-tenths of one percent.

Most of the rise in personal income in the last quarter was from companies rushing to pay dividends before taxes were hiked in 2013, and from an upturn in personal interest income. Both these sources of income went mostly to the well-to-do.

So if we can’t rely on consumers to stoke the economy, what about government? No chance. Government spending is dropping, too.

The major reason the economy contracted between the start of October and end of December 2012 was a major reduction in government spending in the fourth quarter.

Government spending has declined in nine of the last ten quarters, but it took a precipitous drop in the last quarter. This was mainly because military spending fell 22.2 percent. That’s the largest fall-off since 1972 (mainly due to reduced spending on the war in Afghanistan, and worries by military contractors about further pending cuts). State and local spending also continued to fall.

Personally, I’m glad we’re spending less on the military. It’s the most bloated part of the government. Major cuts are long overdue. But the military is America’s only major jobs program. Cutting the military without increasing spending on roads, bridges, schools, and everything else we need to do simply means fewer jobs.

What’s ahead? More of the same. So what possible reason do we have to suspect the recovery will pick up speed? None.

Don’t count on consumer spending. Wages and benefits continue to drop for most people, adjusted for inflation. States are hiking sales taxes, which will hit the middle class and the poor hardest. Deficit hawks in Washington are contemplating additional tax hikes on the middle class.

Housing prices are stabilizing, thankfully. But one out of five homeowners is still underwater, and the ranks of people renting rather than owning are rising. Health-care costs are also rising for most people in the form of higher co-payments, deductibles, and premiums.

Don’t count on government, either. Government spending continues to head downward. The White House has already agreed to major spending cuts, some to go into effect this year. Coming showdowns over the next fiscal cliff, appropriations to fund government operations, and the debt ceiling will likely result in more cuts.

More jobs and faster growth should be the most important objectives now. With them, everything else will be easier to achieve – protection against climate change, immigration reform, long-term budget reform. Without them, everything will be harder.

We have written before regarding how electric utility companies try to get ratepayers rather than stockholders to pay for repairs to their equipment. In particular, we wrote previously how SDG&E appealed to the California Public Utility Commissioon (CPUC) for a rate increase after the disastrous Witch Creek fire:

"It’s standard operating procedure for San Diego based SEMPRA Energy, parent corporation of San Diego Gas and Electric, to delay costly maintenance and then, when there is a breakdown in the system such as the 2007 Witch Creek Fire which burned 198,000 acres, killed two people, injured 40 firefighters and destroyed more than 1,100 homes, to go to the California Public Utilities Commission (CPUC) and get a ruling that would allow them to charge the ratepayers for costs associated with that disaster."

Now Southern California Edison (SCE) and SDG&E, majority and minority owners, respectively, are using the same playbook with regard to the repairs undertaken at the San Onofre Nuclear Generating Station (SONGS). Almost exactly a year ago the plant was shut down because of a radiation leak. Now after extensive repairs SCE and SDG&E want to reopen one of SONG's reactors at 70% of full strength, and they want the ratepayers to pay for testing and repairs that took place in 2012 even though no power whatsoever was put on the grid in 2012. But this is nothing new. This is standard operating procedure for electric utilities all over the country. Case in point: Jersey Central Power and Light (JCP&L) after the Superstorm Sandy debacle.

The steam generators at SONGS were replaced in 2010 at a cost approaching a billion dollars for which the ratepayers have been paying. Those steam generators were supposed to last 20 years. Instead they lasted just two as a radiation leak was discovered in January 2012. SONGS did not generate power for the whole year of 2012, but ratepayers are still paying as if it did. The question is should ratepayers get a refund for paying for power they did not receive. In addition what about the billion dollars that was paid by ratepayers to replace the steam generators in 2010 which only lasted two years. Should ratepayers get reimbursed for that? Also should ratepayers pay another billion dollars to fix SONGS again or should it be relegated to the dustbin of history?

John Geesman, former member of the California Energy Commission and now an attorney with the watchdog group Alliance for the Nuclear Responsibility says that, until the Commission decides otherwise, ratepayers will still be on the hook for San Onofre – about $10 a month per household. “The real key from my perspective is whether the senior management at Edison, once they realize they’re playing with shareholder dollars rather than just something they pass through to ratepayers, will make faster decisions on San Onofre,” Geesman said. The question is whether San Onofre is cost effective at all at this stage or whether ratepayers should be footing the bill for a nuclear generating plant that is not even operating at full capacity.

But even cost considerations take second place to the issue of whether SONGS is safe at all and should even be operating so close to so many households in an earthquake prone area. Remember Fukushima? Many local citizens like San Clemente Green chairman Gary Headrick are adamant that San Onofre should not be reopened. Reopening the plant could endanger 8 million people living nearby in Carlsbad, San Clemente and even San Diego. Critics also say that San Onofre is not needed since we got through the summer of 2012, one of the hottest ever, without a power outage. At a meeting held to air local concerns, a local resident said, "We demand a full, transparent adjudicatory hearing and license amendment process, including an evidentiary hearing and sworn testimony and cross-examination. We cannot be [an] experiment waiting for more radiation leaks." Such a hearing would allow outside experts to testify.

It seems that SCE and SDG&E knew for some time that there were problems at San Onofre, but did little about them. Repair work that should have been undertaken to address vibration that led tubes to rub against each other and against support structures inside the generators was never undertaken. And this is typical for electric utilities that go by the philosophy that repair work is costly and detracts from the bottom line. Wall Street will not approve. That's why many utility companies are laying off workers whose job it is to replace aging equipment. In fact in August 2012 SCE announced plans to lay off more than 700 workers. Their attitude is 'let it break down; then we'll ask the PUC for a rate increase to make repairs.' This way it comes out of the ratepayers' hide and not the shareholders'. This maximizes stock prices and consequently CEO pay. Only this time we're not just talking about utility poles that should have been replaced snapping and cutting power lines; we're talking about nuclear radiation that could make the homes of 8 million people uninhabitable at the very least.

“The problem … with poorly maintained equipment is widespread. America is using up its infrastructure instead of rebuilding it. We grow slowly poorer as roads crumble, dams weaken on their way to deadly collapses, and the electric utilities siphon off funds customers pay for reliable power.

“One indicator of this? From 1983 to 2010, the number of Americans rose 36 percent, but the number of utility workers fell 15 percent. As the electric grid and the pipes carrying water and natural gas under high pressure age, more workers are needed for maintenance, repair and replacement, not fewer.”

As of January 31, 2013, California's Attorney General, Kamela Harris is getting involved as to whether ratepayers should pay the billions in repairs both in 2010 and 2012. She is joining the CPUC investigation that could either cost or save ratepayers a lot of money. Should the public get reimbursed for the large expenditures which seemingly have done little good? SCE wants the CPUC to wait until 2015 to make a decision. Why does SCE want the PUC to wait? Obviously, so they have even more chances to lobby the CPUC to make ratepayers not shareholders pay the costs of their blunders and so they can plan more travel junkets to Hawaii. Of course ratepayers would like to have their bills lowered now and to be reimbursed for energy they paid for but did not get.

It is well known that SCE has lobbied the CPUC for years. In fact they have paid for travel junkets for CPUC commissioners. I wrote previously that "... politicians who support the utility corporations’ agenda get their share of free travel as well. Each year more than a dozen California state lawmakers enjoy a free trip to Hawaii. In 2011 they checked into the luxurious Fairmont Kea Lani hotel in Maui. California law prohibits state lawmakers from taking more than $400 a year in gifts. But as ever there’s a loophole. The $13,000. trip to Maui for lawmakers was paid for by a nonprofit corporation, the Independent Voter Project (huh?), which is a front group for [PG&E and Southern California Edison.]"

The San Onofre nuclear power plant has been offline for a year, due to faulty steam generators, but ratepayers are still paying more than $50 million a month for the non existent power. The CPUC is considering whether ratepayers should be reimbursed and whether they should be reimbursed for the billion dollars in repairs they did a couple years ago or only for recent repairs. SCE has lobbied this one to death and it looks like the CPUC will only favor ratepayer reimbursement on a more limited basis.

Don Kelly of the Utility Consumers Action Network (UCAN) said in an interview on KPBS, "We need to decide whether we should spend another billion dollars repairing a plant that was repaired a couple of years ago for a billion dollars." And don't forget the billion dollars that was spent running the plant in 2012 that produced no electricity!

But the question should be asked: why doesn't Carlsbad, San Clemente and San Diego form a municipal utility district instead of relying on corporate owned utilities to generate their power? Why is the head of Southern California Edison paid more than $3.5 million a year while the general managers of the municipally owned LA Department of Water and Power and the Sacramento Municipal Utility District each earn around $350,000. These municipally owned utilities have for years provided reliable power at lower costs then corporate owned utilities.

The CPUC is currently investigating whether ratepayers should be on the hook for those costs and if they should get a retroactive refund for the time the plant has been offline. The CPUC has scheduled two hearings on Feb. 21 in Costa Mesa to get public comment about ratepayer issues.

February 04, 2013

After the financial meltdown of 2008, the Bush administration shoveled tons of money into Wall Street as did the Federal Reserve. TARP, the Troubed Asset Relief Program, was a $700 billion carte blanche gift to Wall Street to prevent an imminent meltdown. This was engineered by Henry Paulson, Bush's Treasury Secretary. But that was miniscule compared to what the Fed ponied up. A lawsuit by Bloomberg News forced the Fed to reveal that it had given $7.7 trillion to banks all over the world to prevent the looming crisis. And the Fed is still at it with its policy of Quantitative Easing (QE). But while the banks have been bailed out and are still being given monthly money cards, they have not been held to account for the behavior that caused the financial crisis in the first place. No banker has gone to jail despite the massive fraud and corruption that they perpetrated and in fact are still perpetrating.

The main, if not the only, cause of the 2008 meltdown was the mortgage market. Mortgages were being given to anyone who could fog a mirror. Waitresses were stating their incomes at $12,000. a month in order to get a mortgage on a $650,000. McMansion. These mortgages were then packaged into securities (CDOs or Collateralized Debt Obligations) by Wall Street and sold to unwary investors like pension funds. When people defaulted on these mortgages, the whole house of cards started to collapse. Everywhere along the chain of events there was corruption. For instance, the mortgage originators like Countrywide were paid a loan origination fee. The more loans they originated the more money they made. Countrywide then sold off portfolios of mortgages to Wall Street so they had no skin in the game if the mortgages failed. But, you might ask, why did Wall Street buy such toxic crap? Didn't they do due diligence on these portfolios? They actually subcontracted the due diligence out to due diligence underwriters who vouched for the soundness of these portfolios. Why would they do that? Because they had a financial incentive to process and approve as many portfolios as possible. This is one of the schemes that makes it hard to prosecute the bankers. At each step of the way there was no central character responsible for the whole shenanigan. It was parceled out to different subcontractors and entities along the way.

Wall Street can claim that it was the due diligence underwriters' fault for not doing proper due diligence. Not only that but these mortgage portfolios were then evaluated by the rating agencies: Standard and Poor's, Moody's and Fitch Group. These rating agencies gave the portfolios triple A ratings even though many of them verged on worthlessness. Again Wall Street can claim that it was the rating agencies' fault. The rating agencies got paid by Wall Street itself so they had every incentive to rate them highly. If they didn't, Wall Street wouldn't have been able to attract investors, and the rating agency that didn't play along would lose business. They were only too happy to play along. Since the fraud and corruption existed on so many levels, it is hard for the US Justice Department to go after any particular banker.

Lloyd Blankfein, CEO of Goldman Sachs, was hauled before a Congressional committee to explain why Goldman had peddled worthless triple A rated crap to unwary pension funds while betting that these portfolios would fail. Goldman ended up making money playing both ends against the middle. The standard answer was that Goldman was a "market maker" and added "liquidity" to the market. So this gave Goldman the right supposedly to have one department peddling worthless CDOs while another department was betting against those same portfolios. But the fact of the matter is that it's hard to hold Lloyd Blankfein accountable since the laws have been so deregulated that hardly any banking activity is illegal these days. The Financial Services Modernization Act of 1999 removed any barriers among investment banks, commercial banks and insurance companies allowing one Wall Street firm to mix and match all three. The Commodity Futures Modernization Act of 2000 allowed the deregulation of derivatives so that casino betting in the financial arena held full sway.

The big banks have been engaged in money laundering, rate rigging, bid rigging and other forms of heinous behavior. Billions of dollars were skimmed from cities all across America by colluding to rig the public bids on municipal bonds, a business worth $3.7 trillion. Banks involved in the bid rigging scheme included Bank of America, JPMorgan Chase, Wells Fargo and UBS. These banks have already paid a total of $673 million in restitution after agreeing to cooperate in the government’s case. In addition many municipalities across America and Europe have been bankrupted by interest rate swaps, another Wall Street invention.

In December 2012 UBS agreed to pay about $1.5 billion to settle charges in the LIBOR interest rate rigging scandal. The Wall Street Journal reported:

"Regulators described the alleged illegality as 'epic in scale,' with dozens of traders and managers in a UBS-led ring of banks and brokers conspiring to skew interest rates to make money on trades. The six-year effort 'seriously compromised' the integrity of financial markets, said the U.S. Commodity Futures Trading Commission."

Traders boasted about their ability to move the rates up or down at will for personal profit. "Think of me when yur on your yacht in Monaco" a trader electronically chatted. Another trader emailed: "Dude. I owe you big time! Come over one day after work and I’m opening a bottle of Bollinger."

But UBS will not face any criminal prosecution. Justice Department officials said they decided not to charge the Zurich-based company, fearing such a move could endanger its stability. It seems that, after pouring trillions of dollars into "saving" the banking system and the world wide capitalist economy, why would you want to go and piss it all down the drain by prosecuting these same banks for criminal activity? So they get a fine in civil court that just represents the cost of doing business, a few days profits, and then they go on engaging in the same criminal behavior.

But that's not all folks. There is even more overt criminal activity going on. In December 2012, HSBC was fined $1.9 billion for laundering drug money out of Mexico. It's getting harder to fight the War on Drugs if the banks are in cahoots with the drug kings themselves. But no bankers will go to jail. Jail is reserved for young black men primarily who get caught with an ounce of marijuana in their possession. HSBC has also laundered money for Iran and Libya. It seems that even terrorists need a banker and HSBC was only too willing to comply taking in suitcases of cash through specially designed windows built just for that purpose. In return for overt criminal activity, HSBC gets a slap on the wrist and no criminal prosecution because Eric Holder and the US Justice Department are a bunch of wimps treading on eggshells lest they upset the worldwide criminal capitalist banking system and bring on the collapse of the world economy.

"Shame on the Department of Justice. Shame on them," said Jimmy Gurulé, a former federal prosecutor who teaches law at the University of Notre Dame. "These are actions that facilitated major international drug cartels to continue their operations," he said. "Now, if that doesn't justify criminal prosecution, I can't imagine a case that would."

"Since 2009, several European banks have paid heavy settlements related to allegations they moved money for people or companies on the U.S. sanctions list: Switzerland's Credit Suisse, $536 million; British bank Barclays, $298 million; British bank Lloyds, $350 million; Dutch bank ING, $619 million; and the Royal Bank of Scotland, $500 million for alleged money laundering at Dutch bank ABN Amro.

"While those cases involved deals with such countries as Iran, Libya, Cuba and Sudan, the HSBC case was notable for the government's allegation that it also helped launder $881 million in drug-trafficking proceeds for Mexican drug cartels."

In the Savings & Loan scandal of the 1980s, over 1000 bankers went to jail. But the Saving and Loan deal was a paltry undertaking compared to the worldwide criminal enterprise that the global capitalist banking system represents. At the heart of the whole thing are the world's central banks each of which is printing money like crazy trying to debase their currencies. The US Fed's goal is to drive up inflation. What? That encourages people to buy now instead of waiting for later when the prices might go up. The Fed indulges in all sorts of convoluted thinking of this sort. They are giving $85 billion a month in QE (Quantitative Easing) to the big banks in an effort to keep the economy from going into the tank.

The theory is that by keeping interest rates low, people will borrow more money and buy more stuff. A side effect is that the US is able to keep its interest payments on the national debt low. Another side effect is, that because savers are getting practically no interest on their savings accounts, they will invest in the stock market. Hello! The stock market is at all time highs! Since consumption is 70% of GDP, the Fed and the US government desperately need people to keep buying stuff. This will supposedly create jobs and lower the unemployment rate (one of the Fed's mandates) which is still very high by historic standards. But printing money cheapens the value of the dollar.

The cheapening of the dollar will also make US exports more attractive. But since other countries are engaged in the same strategems, the overall denouement is that the world is degenerating into a currency war. The problem is that QE only amounts to another round of gift giving to the big banks. The money isn't trickling down to the average person. If the Fed really wanted to boost the American economy, it would inject money into the bottom of the economy (example, paying off people's mortgages thereby freeing up money for consumption) and let it trickle up instead of the opposite which is not working, but it is against the law to do that. Capitalist rules prevent that from happening. And although the Fed is encouaging them do do it, intelligent consumers are not going to borrow money and go into debt just to purchase a lot of cheap crap made in China in order to keep the economy going. What if consumers revolt? Then the economy goes into the tank.

The state of New York has filed suit against JP Morgan Chase for fraud related to the sale of mortgage backed securities. Eric Schneiderman, the state's attorney general, seeks an unspecified amount of damages related to billions of dollars in investor losses. The state maintains that JP Morgan's Bear Stearns division should have known that the stuff it was selling was crap. Bank of America agreed recently to pay $2.43 billion to settle claims it misled investors about the acquisition of Merrill Lynch & Co., in the largest shareholder class-action settlement tied to the meltdown. BofA didn't admit wrongdoing.

And homeowners foreclosed on illegally are also filing lawsuits. Many were told that in order to have their mortgages modified they would have to adhere to certain conditions including continuing to make mortgage payments albeit at a reduced rate. After complying with all conditions, many had their homes foreclosed on anyway. The banks had a two track strategy: one department pursued modification while another concurrently pursued foreclosure. The foreclosure guys usually won out because it was more profitable to foreclose than to modify.

States are filing lawsuits against banks because of MERS, the Mortgage Electronic Registration System, claiming that they have been defrauded out of registration fees and that mortgages transferred through MERS are illegal. Louisiana’s lawsuit is being brought under RICO, alleging wire and mail fraud and a scheme to defraud the parishes of their recording fees.

And the beat goes on. Little piddly civil lawsuits with no criminal prosecution instead of one gigantic criminal lawsuit by the US Justice Department. That means no bankers in orange jumpsuits pulling KP duty any time soon. They are free to continue their fraud and corruption because to discontinue it would bring down the whole international banking system.